Should I amend 2018 return to resolve the access IRA contributions?

[kumingtail]

Would you kindly help me to resolve the issue of getting 6% penalty of access contribution?

Here is the situation:

• Made $5,500 contribution to Traditional IRA in 2018
• Made delayed conversion (including $300 of gains) from Traditional to Roth IRA (Backdoor) on March. 2019
• Could not received nor included 1099-R of 2018 due to the late conversion
• Made $6,000 contribution and conversion to Roth in 2019
• Received about gross distribution of about $11,800 in 1099-R in 2019
• Putting $11,800 as nondeductible contributions to Traditional IRA and Roth IRA resulted TT that I should pay 6% penalty

The action that I made is:

• Made two separate entries to 1099-R within 'Wages & Incomes'
• One of the entry is $5,800 gross income of 1099-R, 2018 by selecting 'Box 7: P-Return of contribution taxable in 2018' although I did not received 1099-R in 2018
• Another entry is $6,000 gross income of 1099-R, 2019 by selecting 'Box 7: 2-Early distribution (except Roth)'
• In 'deductions & credits', I made $11,800 of nondeductible contributions to 'Traditional IRA and Roth IRA'
• Now TT tells me that I need to pay 6% penalty on $300 (the interest that I accidentally gained in Traditional IRA before converting to Roth)

What should I do now? Is this even a correct way to do it? I'm trying to properly report everything and don't know what else I can do. Please help!!

[DanaB27]

I'm understanding that the $6,000 in 2019 was also Backdoor conversion? If yes then please follow the steps below to enter the $6,000 contribution and conversion. Please remove the $5,800 from the "Deduction & Credit" section since you contributed them in 2018, not in 2019.

For the $5,800 you will need to amend your 2018 tax return and also follow the "Backdoor IRA" Instructions. Please see How do I amend a 2018 return in TurboTax?

Please use the following instructions to enter a "Backdoor IRA" to ensure it is calculated correctly in TurboTax:

To enter the nondeductible contribution to the traditional IRA ($6,000):

1. Login to your TurboTax Account 
2. Click "Work on other tax breaks"
3. Click "Federal" from the left side of your screen
4. Click “Deductions &Credits” on the top
5. Scroll down to “Retirement and Investments” and click “Show more”
6. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
7. Select “traditional IRA”
8. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
9. Enter the amount you contributed
10. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
11. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes”
12. If you had a basis in the Traditional IRA before then enter the amount.
13. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the 1099-R distribution/conversion ($6,000): 

1. Click "Federal" from the left side of your screen
2. Scroll down to “Retirement Plans and Social Security” and click “Show more”
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan Withdrawals (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I converted all of this money to a Roth IRA account.”
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contributions to your IRA?"
12. Answer the questions about the basis

[kumingtail]

Thank you so much for the answer and yes, $6,000 in 2019 was also Backdoor conversion.

Just to confirm, Is it okay to enter only $6000 for 1099-R in Turbotax when my 1099-R document states taxable amount as $1100? Based on your instruction, I assume that I should amend your 2018 for $5,800?

Thanks

[macuser_22]

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@kumingtail wrote:

Would you kindly help me to resolve the issue of getting 6% penalty of access contribution?

Here is the situation:

• Made $5,500 contribution to Traditional IRA in 2018
• Made delayed conversion (including $300 of gains) from Traditional to Roth IRA (Backdoor) on March. 2019
• Could not received nor included 1099-R of 2018 due to the late conversion
• Made $6,000 contribution and conversion to Roth in 2019
• Received about gross distribution of about $11,800 in 1099-R in 2019
• Putting $11,800 as nondeductible contributions to Traditional IRA and Roth IRA resulted TT that I should pay 6% penalty

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You do not "make up"  a 1099-R.

Was your 2018 Traditional IRA contribution non-deductible (i.e. you did not deduct it on line 32 on the 1040 schedule 1)?

If so then you should have filed a 2018 8606 form with the non -deductible contribution on line 1 and of no other prior non-deductible contributions on line 14.  For the 2019 contribution enter in in the IRA contributions section and ir the question is asked, say you do NOT want to deduct it.

Enter the 2019 1099-R and answer the follow-up questions.

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes"  then enter the non-deductible contributions made for tax years before 2019  that will be the 2018 8606 line 14 value.

Enter the 2019 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2019, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.